Xinyuan Real Estate's (XIN) Consent Solicitation has No Effect on Ratings - Fitch

Fitch Ratings says today that ratings on Xinyuan Real Estate Co., Ltd. (NYSE: XIN) (Xinyuan; B/Stable) and its bonds due in 2018 and 2019 will not be impacted even if the proposed amendments in the consent solicitation announced on 19 January 2016 are adopted.

The principal purpose of the consent solicitation is to amend the indentures of the company's 2018 and 2019 notes to give the company more flexibility in offshore and onshore debt-raising capacity, cross-border intra-group fund flows, secured acquired indebtedness, hedging strategy, rearranging its business strategy or corporate structure, and investment in minority-owned JVs and unrestricted subsidiaries.

The proposed amendments, if adopted, will provide Xinyuan more funding and operational flexibility to support its current expansion, although a larger scale would require a higher level of indebtedness. Fitch does not expect its view on Xinyuan to change solely due to the adoption of the proposed amendments. However, Xinyuan's rating may come under pressure in the event that expansion drives leverage, as measured by net debt/adjusted inventory, to above 60%, and contracted sales/total debt below 0.6x, both on a sustained basis.

Major proposed amendments of the indentures include:
- lowering the minimum fixed-charge coverage ratio requirement to 2.75x from 3.00x;
- increasing the permitted subsidiary indebtedness basket to 30% of total assets from 20%;
- increasing the purchase money indebtedness basket to 50% of total assets from 40%;
- expanding the definition of "entrusted loans" from intercompany loans within China to loans from the company or a restricted subsidiary to a non-guarantor subsidiary that are not reflected on the consolidated balance sheet of the company;
- permitting designation of members of the Restructuring Group as unrestricted subsidiaries upon a restructuring, subject to certain conditions;
- permitting such investments in an investee whose other shareholder or partner holds 10.0% or more of the company's shares or is an affiliate, so long as the investment complies with the "Limitation on Transactions with Shareholders and Affiliates" covenant;
- permitting deemed investments upon designation of subsidiaries in the Restructuring Group as unrestricted subsidiaries in connection with a restructuring, subject to certain conditions; and
- removing the "Limitation on the Company's Business Activities" covenant.

Bond holders have till 2 February to give their consent to the proposed amendments.

For a more detailed discussion on Xinyuan's rating, see the update report on the company dated 12 June 2015 and available at www.fitchratings.com.

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